Making Tax Benefits Work For The Honest Taxpayer

As the tax-filing deadline draws closer, many will experience the increasingly regular (not to mention, more aggressive) follow ups from our chartered accountants on filing our returns and paying any pending dues. Some of us who've paid our pending dues may also be reminded of the need to further disclose all the physical assets we own.

It's also mandatory above a certain income threshold to disclose property, jewellery and vehicle(s) owned. There's a part of me that understands the need for this but a much bigger part wonders what's going on. Shouldn't the problem of people not disclosing their incomes in the first place be what the government should be monitoring more closely? Shouldn't 20 years of paying 30%+ of everything you make allow you to do what you want with your 70% without further explanations?

Millions of middle class Indians pay their taxes year after year and give up LPG subsidies when asked to do so but are oblivious about their financial future.

Which begs the question -- what's in it for the honest taxpayer? There's no point getting into why we can't have better roads, cleaner neighbourhoods et al because that's a matter to be addressed in a different article. What I'd like to look at though is what's really available for the honest taxpayer to do to better channelize his / her earnings, given the premise that a vast majority of us may be ignorant of the available tax benefits.

The data of about 46,000 users of the tax-planning calculator on Bigdecisions.com was analyzed over the last nine months to see how little people plan for their taxes across the different sections of benefits. Users were split across income bands, with those earning under ₹2.5 lakh per annum at one end and above ₹1 crore per annum at the other. The following findings are bound to surprise you!

Across all income levels, over 90% users cannot save anything further under section 80C. Across the various heads ranging from Provident Fund (PF), insurance and home loans to name a few, there's no additional benefit available to 90%+ of users as their limits are already exhausted.

Likewise, less than 20% users are in a position to avail any further benefits under section 80CCD which deals with contributions to pension account.

On section 80D which deals with health insurance benefits, 30% users have a little more room to save some more on their taxes by using up the ₹25,000 allowance on health insurance premiums.

Before we conclude that digital audiences are savvier and better planned, on category after category from health insurance to retirement planning, it has been observed that significant parts of India's middle class are grossly inadequately prepared for their financial futures.

It's time for either lower tax slabs or higher exemptions to increase savings dramatically or getting more people into the tax net.

The net message of this piece is that while levels of scrutiny are going up exponentially, the ease of transacting and the transparency of the government machinery haven't so far percolated in terms of benefiting the core taxpayer.

Despite rising income levels and larger savings needs for the future, tax exemption limits (like the ₹1.5 lakh exemption on section 80C) are paltry given the kinds of corpuses we need to build for our children's futures and our own retirement or to protect against things like mounting healthcare costs.

While we appreciate the need for greater scrutiny, it's time we demanded far better bang for the buck for the taxes we pay and greater help to build the wealth we've worked so hard to earn. So it's time for either lower tax slabs or higher exemptions to increase savings dramatically or getting more people into the tax net. A combination of all of these too will work beyond more than just the ease of filing and paying taxes online and getting refunds on time.